The future of construction contracts
Ewan Wilson, Associate, CMS Cameron McKenna Nabarro Olswang LLP
THE sweeping changes introduced by the Building Safety Act 2022 and the amendments to the Building Regulations 2010 will undoubtedly have a lasting impact on the UK construction industry. The Joint Contracts Tribunal (JCT) is expected to announce its new suite of construction contracts in Spring 2024 and it has already confirmed that this will include standard form drafting to assist parties in navigating this new legislation.
However, while the dust settles and market practice is established in relation to the new legislation, it also offers an opportunity to consider what other changes are on the horizon for construction contracts and what adjustments to standard form contracts would be welcomed in future.
Duty of care
Generally speaking, the duty of care provisions in standard form contracts do not align with market practice, or the standard wording that professional indemnity insurers increasingly expect to find in construction agreements. Most standard forms of contract oblige a contractor or consultant to carry out works or services in a ‘proper and workmanlike manner’. It would make sense for the duty of care wording to be one of the first sections to be addressed when it comes to modernising standard forms of contract.
It would make sense for the duty of care wording to be one of the first sections to be addressed when it comes to modernising standard forms of contract.This is fundamental to any construction contract and is amended in the vast majority of cases. Updating the duty of care to introduce a standard of care with reference to ‘reasonable skill, care and diligence to be expected of a qualified engineer or contractor’ would be a more balanced position, aligned to market practice.
Environmental, social and governance
One of the hot topics in recent years has been the inclusion of provisions relating to environmental, social and governance (ESG) concerns. This has been developed through the use of NEC4’s secondary option clause X29 and the Chancery Lane project’s growing library of ‘green clauses’. It would be welcome for other standard forms to develop drafting that strikes an appropriate balance between the needs of developer/employer entities in championing greener projects, while avoiding unnecessarily penalising or passing excess risk to contractor/consultant entities – especially in a market where margins are already tight.
JCT has announced that its standard form contracts will adopt previously optional supplemental provisions into its main conditions, such as sustainable development and environmental policies. Greater collaboration is essential to delivering sustainable projects and introducing financial incentives to achieving specified ESG related goals is one way greener projects could be delivered to the benefit of all involved.
Fluctuation provisions
One of the least commonly used sections in standard form agreements is that governing fluctuation provisions. These are compensatory clauses that allow the contract price to be adjusted to reflect changes in the cost of materials or labour.
JCT has announced that it aims to offer greater accessibility and prominence to fluctuation provisions and will publish separate online guidance along with its new contract suite in 2024.The construction industry has been witness to unprecedented external market pressures in recent years such as COVID-19, Brexit and international conflict affecting supply chains, therefore such provisions may in principle be useful.
However, if fluctuation provisions are to become a more viable option for employer/developer entities, standard forms of contract would ideally reconfigure the way in which these are presented to balance the interests of all parties. That could be achieved by targeting the fluctuation in price of specific materials or by restricting the scope of the programme in which fluctuation provisions are operational.
JCT has announced that it aims to offer greater accessibility and prominence to fluctuation provisions and will publish separate online guidance along with its new contract suite in 2024.
In any event, currently the fluctuation provisions contained within most standard forms often do not appeal to developer/employer clients and is perhaps why this option is used less frequently than one may expect.
Future proofing
This umbrella term is being championed as one of the key themes of JCT 2024 and encapsulates various areas in which contracting can be streamlined and modernised. This is being addressed on different fronts across a number of standard forms and the wider industry.
There is a general attempt to streamline construction agreements to ensure that they are as user-friendly as possible, by reducing lengthy administrative steps which in turn cause delay.
There is a general attempt to streamline construction agreements to ensure that they are as user friendly as possible, by reducing lengthy administrative steps which in turn cause delay.In part, this can include a revaluation of the prescriptive time periods contained within construction agreements, including the time periods for assessing and responding to notices. The objective here should be to strike a balance between avoiding delay in decision making while maintaining fair and reasonable time periods for responses to be communicated between parties.
We are also beginning to see a modernisation of the overall contract structure with a move away from male pronouns to gender-neutral and more inclusive language – which many in the industry have promoted for some time.
Lastly, we could begin to see the inclusion of additional ‘relevant events’ (events which trigger claims for an extension of time) to bring standard form contracts up to date with current events. The most obvious example being COVID-19 or pandemic-related events, which are likely to feature as ‘relevant events’ in the JCT 2024 suite of contracts. While that might seem like closing the stable doors after the horse has bolted, it is an example of market practice being enshrined in standard forms.
Most COVID-19-related provisions were applied across construction agreements on a case-by-case basis; establishing some form of market practice across standard forms of contract would be helpful, should it ever need to be exercised again or should other pandemics arise.
Conclusion
The next generation of construction contracts will be dominated by the amendments to the Building Regulations 2010 and the well-documented changes introduced by the Building Safety Act 2022. However, when updating standard forms there are plenty of ‘smaller ticket’ areas that are equally deserving of attention and which could make a tangible difference to day-to-day contracting.
Ewan Wilson, Associate, CMS Cameron McKenna Nabarro Olswang